Goldman Sachs says to buy these 3 chipmakers as it raises their earnings forecasts

Published Tue, Sep 7 20217:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Investment bank Goldman Sachs has revised its growth forecasts upward for chipmakers in the face of "strong" demand, and reiterated its buy ratings on three stocks. Taiwan Semiconductor Manufacturing Company , the world's largest chipmaker, is set to raise its prices to offset higher raw materials costs and labor force tightness, Goldman said. "The price hike suggests a still strong overall demand growth outlook. During our Supply Chain Day conference calls [held on Aug. 19] … TSMC was confident in delivering revenue CAGR [compound annual growth rate] close to 15% in the next 5 years," Goldman's analysts led by Bruce Lu wrote in a Sep. 3 research note. As a result, Goldman upped its earnings-per-share estimate for TSMC by 3% for 2021 and by 15.8% for 2023 and reiterated its buy rating on the stock. EPS is an important metric used by traders to gauge the value of a stock. "We maintain our constructive view on the industry's underlying structural growth areas (such as 5G/AI), TSMC's solid technology leadership and execution, an easing competitive landscape, and sustainable shareholder returns," the analysts stated. TSMC is also on the bank's conviction list. TSMC, which makes chips for other companies and is known as a foundry, was named Asia's most valuable company last month , reaching a market capitalization of more than $500 billion as a global semiconductor shortage boosted demand. Goldman also revised its EPS estimates for UMC , a second-tier foundry, upward by 1.7% for 2021 and 18% for 2023. "Given our unchanged positive view on UMC's structural profitability improvements with implied TP [12-month target price] upside of 70%, we reiterate our Buy rating," the analysts stated. UMC is also on Goldman's conviction list, and the bank expects it to raise its prices. The bank also reiterated its buy-rating on Vanguard , another second-tier foundry. It revised its EPS forecast down 0.6% for 2021 but raised it by 17.9% for 2023. "Vanguard has a good track record of solid execution," the analysts stated. "We believe it is reasonable to trade at a slight premium over UMC and discount to TSMC. With c.21% upside to the company's latest close, we retain our Buy rating to the stock," they added. CNBC's Eustance Huang contributed to this report.

Investment bank Goldman Sachs has revised its growth forecasts upward for chipmakers in the face of "strong" demand, and reiterated its buy ratings on three stocks.